Brazil could pay Petrobras up to $16 billion over rights, Itaú BBA says

In a client note, analysts estimated that based on a price of $60 per barrel, the government would have to return to the company about $16 billion, given the drop in prices of oil from about $100 in 2010.Reuters | November 07, 2016, 23:23 IST

SAO PAULO: The Brazilian government could pay as much as $16 billion to state-controlled oil company Petroleo Brasileiro SA in renegotiating a $43 billion deal in 2010 to develop vast offshore crude deposits, Itau BBA said on Monday.

In a client note, analysts estimated that based on a price of $60 per barrel, the government would have to return to the company about $16 billion, given the drop in prices of oil from about $100 in 2010.

In 2010 Petrobras, as the company is commonly known, paid the government $43 billion for the rights to develop deposits holding 5 billion barrels of crude buried under a layer of salt beneath the ocean floor.

Terms of the deal to the so-called Transfer of Rights Area could be renegotiated after five years.

"The renegotiation of the barrels was perceived as a risk by investors," the note said. "Following the latest comments by government officials, the revaluation could actually be positive for Petrobras due to the low oil prices."

Given government efforts to narrow a record budget deficit, the Itau BBA analysts expect the payment to be made in barrels of oil instead of cash.

Newspaper Folha de S.Paulo said last week Petrobras could receive as much as $20 billion in compensation, without saying how it obtained the information. In a securities filing later in the day, Petrobras said no decision had yet been made on the subject.

Preferred shares in Petrobras rose 6 percent to 16.97 reais on Monday, extending gains to over 150 percent so far this year.

Itau BBA holds an "outperform" recommendation on the stock, arguing that the prospect of strong global supply of oil will help Petrobras, the world's most indebted oil company, cut costs and sell assets.